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Subrogation Claims, Liens and "Medicare Advantage Plans"

Okay, this one is a bit dense folks, but it’s important. We all work in a technical world with specialized language, so I think my readership can handle this.

Brand new laws can cause problems; revisions to prior laws can do the same thing. When laws are changed it takes a while for the impact of the changes to get worked out. New language may sound great during the legislative process, but can cause unintended problems down the road when interpretation of that language comes into play. Such is the case with a pending situation in New York State, but it is instructive to read through this information no matter which state you work in.

In November 2009, Governor Paterson signed into law Senate Bill S66002 which amended certain provisions of insurance law. Part F §5-335 affects the handling of tort claims specifically. This section deals with the question of who shall and shall not have a lien or right of subrogation or reimbursement against settlement of an action for personal injuries (medical, dental, or podiatric malpractice), or wrongful death.

The section states broadly that no “benefit provider” shall have a lien or right of subrogation or reimbursement because they have no “statutory right of reimbursement”. But what if the two sections conflict? Let’s examine this further:

Section 5-101 defines the term "benefit provider” as follows:

"any insurer, health maintenance organization, health benefit plan, preferred provider organization, employee benefit plan or other entity which provides for payment or reimbursement of health care expenses, health care services, disability payments, lost wage payments or any other benefits under a policy of insurance or contract with an individual or group."

Section 5-335 goes on to state:

(a) When a plaintiff settles with one or more defendants in an action for personal injuries … it shall be conclusively presumed that the settlement does not include any compensation for the cost of health care services, loss of earnings or other economic loss to the extent those losses or expenses have been or are obligated to be paid or reimbursed by a benefit provider, except for those payments as to which there is a statutory right of reimbursement. (underline added)

And again: “Except where there is a statutory right of reimbursement, no party entering into such a settlement shall be subject to a subrogation claim or claim for reimbursement…”

Ok, this seems pretty straightforward. “Benefit providers” in the State of New York are not entitled to a claim against personal injury settlement proceeds unless they also have a “right of reimbursement”. Well just what kind of organization would have a “statutory right of reimbursement” that would apply in this state? Well, Medicare for one; those rights are settled beyond any serious doubt.

But the real controversy regarding rights of reimbursement does not concern itself with Medicare’s rights, the issue revolves around the perceived “rights” of a Medicare Advantage Plan. Are these Medicare-related entities entitled to a “statutory right” via their Medicare connection or are they mere “benefit providers” as described under New York law?

A January 31, 2011 ruling in the United States District Court for the Southern District of Florida may help. In Humana Medical Plan, Inc. v. Cooke, the Humana Medical Plan, an administrator of an Advantage Plan, sought reimbursement of $19,155.41 for treatment resulting from a slip and fall injury. Humana filed an amended complaint against both the plaintiff and the law firm (note the inclusion of the firm) seeking reimbursement under the Medicare Secondary Payor statute, specifically 42 U.S.C. § 1395y (b) (2). They argued that the above section, coupled with 42 C.F.R. §422.108 (f), entitled it to full reimbursement.

The court conducted a thoughtful analysis of both sections and ruled that the plan, standing in the place of the Secretary of Health and Human Services as an authorized Medicare Advantage Plan provider, has the right to make conditional payments, charge interest, and waive recovery rights; however only the United States may bring an action for subrogation or seek recovery of conditional payments. The court therefore granted the defendants’ motion to dismiss. This case is important because it clearly states that it is the United States, not the plan that has the “statutory right of reimbursement” and hence the authority to file suit under the provisions of the Medicare Secondary Payor statute.

So, can § 5-335 bar an Advantage Plan’s claim for reimbursement? Arguably yes. Under the logic applied in Humana Medical Plan, Inc. v. Cooke a plan has no statutory right of reimbursement and, lacking any such right, can have no right of subrogation or reimbursement against any settling party. In a case in which both a plan and Medicare made payments, (for example, if a claimant was on Medicare for some period and then opted into an Advantage Plan), you will need to examine the payments made by both entities in order to distinguish between Medicare’s statutory right of reimbursement and the plan’s unrecoverable subrogation claims.

Are you contemplating settlement of a case with complex issues like this one? Call Frank C. Kilcoyne, CSSC at 800 544 5533. I am here to help.

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See Title 42 U.S.C. ξ 1395y (b) (2).